Australian mortgage holders have been handed another worrying signal after the US Federal Reserve raised interest rates for the first time in more than three years this morning (AEST).

The Fed lifted its benchmark rate by 0.25 percentage points overnight to a range of 3.75 to 4 per cent, as it renewed its fight against stubborn inflation.

It might have happened thousands of kilometres away but the decision impacts Australia, particularly with the Reserve Bank preparing to make its own call on rates later this month.

The RBA has already increased rates three times this year, taking the cash rate from 3.6 per cent to 4.35 per cent. It left rates unchanged in August, although minutes revealed several board members believed another increase could be necessary if inflation remained troublesome.

Why the US move hits home

The Fed does not determine Australian interest rates, and its decision does not mean the RBA must follow, but global borrowing costs are important.

Australian banks raise some of their money through wholesale funding markets, while movements in international bond markets can influence funding costs and fixed mortgage rates here. Those pressures were already building before the Fed’s announcement. Australian 10-year government bond yields recently climbed to a 15-year high, prompting warnings about the implications for borrowers.

AMP chief economist Shane Oliver has warned that higher global rates could put additional pressure on Australian borrowers, particularly through fixed mortgage rates, while adding to the difficult environment confronting the RBA.

Another hike could be coming

The bigger concern is that the Fed may not be finished.

US policymakers indicated further tightening could follow, with most expecting at least one more increase this year as inflation remains above target. For Australians with a mortgage, that adds another layer of uncertainty ahead of the RBA’s September meeting.

There is one group that may see an upside.

Retirees and other Australians holding substantial cash savings could benefit if higher rates flow through to better term deposit and savings returns.

For borrowers, however, hopes of meaningful interest-rate relief are looking increasingly distant.